Principles of management
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Principles of Management. Week 4 – Decision Making. Rational Decision Making 8-step Process. 1. Identification of problem 2. Identification of Decision Criteria 3. Allocation of weights to criteria 4. Development of alternatives 5. Analysis of alternatives 6. Decide on an alternative

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Principles of Management

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Principles of management

Principles of Management

Week 4 – Decision Making


Rational decision making 8 step process

Rational Decision Making 8-step Process

  • 1. Identification of problem

  • 2. Identification of Decision Criteria

  • 3. Allocation of weights to criteria

  • 4. Development of alternatives

  • 5. Analysis of alternatives

  • 6. Decide on an alternative

  • 7. Implementation of decision

  • 8. Evaluation of decision


The decision making process

The Decision-Making Process

Allocation of

Weights to

Criteria

Problem

Identification

Identification of

Decision Criteria

Development of

Alternatives

Acer

Compaq

Gateway

HP

Micromedia

NEC

Sony

Toshiba

“My salespeople

need new computers”

Price

Weight

Warranty

Screen type

Reliability

Screen size

Reliability 10

Screen size 8

Warranty 5

Weight 5

Price 4

Screen type 3

Analysis of

Alternatives

Selection of an

Alternative

Implementation

of an Alternative

R S W W P S

Acer 4 3 4 3 2 6

Compaq 3 4 5 2 6 7

Gateway 9 6 7 7 8 2

HP 3 5 6 7 6 5

Micromedia 2 2 3 4 5 4

NEC 3 4 5 6 7 2

Sony 7 5 6 4 2 8

Toshiba 3 4 5 6 7 3

Acer125

Compaq142

Gateway 246

HP174

Micromedia103

NEC151

Sony192

Toshiba154

Gateway

Evaluation

of Decision

Effectiveness


Decisions in the management functions

Decisions in the Management Functions


About rational decision making

About Rational Decision Making

  • Is it always possible to make rational decisions?


Principles of management

Single, well-

defined goal

is to be achieved

Problem is

clear and

unambiguous

All alternatives

and consequences

are known

Rational

Decision

Making

Preferences

are clear

Final choice

will maximize

payoff

Preferences

are constant

and stable

No time or cost

constraints exist


Bounded rationality

Bounded Rationality

behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information

satisfice - accept solutions that are “good enough”


Intuitive decision making

Intuitive decision making

Based on “gut feeling”

subconscious process of making decisions on the basis of experience, values, and emotions

does not rely on a systematic or thorough analysis of the problem

generally complements a rational analysis


Types of problems decisions

Types of Problems & Decisions

Well-Structured Problems - straightforward, familiar, and easily defined

Programmed Decisions - used to address structured problems

minimize the need for managers to use discretion

facilitate organizational efficiency


Types of problems and decisions

Types of Problems and Decisions

Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete

Nonprogrammed Decisions - used to address poorly- structured problems

produce a custom-made response

more frequent among higher-level managers

Procedure, Rule, & Policy


Types of problems level in the organization

Types of Problems & Level In the Organization

Ill-structured

Top

Type of

Problem

Level in

Organization

Lower

Well-structured

Programmed

Decisions

Nonprogrammed

Decisions


Things to consider

Things to consider . . .

Certainty– how certain is a particular outcome?

Risk– how much risk can you take?

expected value - the conditional return from each possible outcome

Uncertainty –Limited information prevents estimation of outcome probabilities for alternatives.


Expected value for revenues from the addition of one ski lift

Expected Value for Revenues from the Addition of One Ski Lift


What to do

What to do?

maximax choice – optimistic

maximizing the maximum possible payoff

taking the best of all possible cases

maximinchoice – pessimistic

maximizing the minimum possible payoff

taking the best of the worst cases

minimax- minimize the maximum “regret” (difference between what you get and the best case)


Payoff matrix

Payoff Matrix


Regret matrix

Regret Matrix


Decision making styles

Decision-Making Styles

  • Dimensions of Decision-Making Styles

    • Value orientations

      • Task and technical concerns

      • People and social concerns

    • Tolerance for ambiguity

      • Low tolerance: require consistency and order

      • High tolerance: multiple thoughts simultaneously


Decision making styles1

Analytical

  • Prefer complex

  • problems

  • Carefully analyze

  • alternatives

  • Enjoy solving

  • problems

  • Willing to use

  • innovative

  • methods

Decision-Making Styles

  • Directive

  • Prefer simple,

  • clear solutions

  • Make decisions

  • rapidly

  • Do not consider

  • many alternatives

  • Rely on existing

  • rules

  • Conceptual

  • Socially oriented

  • Humanistic and

  • artistic approach

  • Solve problems

  • creatively

  • Enjoy new ideas

  • Behavioral

  • Concern for their

  • organization

  • Interest in helping

  • others

  • Open to

  • suggestions

  • Rely on meetings


Decision making styles2

Decision Making Styles

High

Analytical

Conceptual

Directive

Behavioral

Tolerance for Ambiguity

Low

Tasks and TechnicalConcerns

People and SocialConcerns

Value Orientation


Common errors in decision making

Common Errors in Decision Making

  • Over-confidence

  • Hindsight

  • Self-serving

  • Sunk costs

  • Randomness

  • Representation

  • Availability

  • Framing

  • Confirmation

  • Selective perception

  • Anchoring

  • Immediate gratification


Advantages and disadvantages of group aided decision making

Advantages and Disadvantages of Group-Aided Decision Making

Advantages Disadvantages

1. Greater pool of knowledge 1. Social pressure

2. Different perspectives 2. Minority domination

3. Greater comprehension 3. Logrolling

4. Increased acceptance 4. Goal displacement

5. Training ground 5. “Groupthink”


Principles of management

  • Decision-Making Approach

  • Rationality

  • Bounded Rationality

  • Intuition

  • Types of Problems and Decisions

  • Well-structured

  • - programmed

  • Poorly structured

  • - nonprogrammed

  • Decision

  • Choose best

  • alternative

  • - maximizing

  • - satisficing

  • Implementing

  • Evaluating

  • Decision-Making Conditions

  • Certainty

  • Risk

  • Uncertainty

  • Decision Maker Style

  • Directive

  • Analytic

  • Conceptual

  • Behavioral

Decision-Making

Process


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